“Society knows perfectly well how to kill a man and has methods more subtle than death.”
Business and Society
Any business cannot operate in isolation. The interaction with the society and its different aspects like the people, environment as well various systems is a must for its continuity. These very aspects that the business has to be communicate with and interact too are what we call ‘stakeholders’ and while with these stakeholders, the ‘stakes’ are definitely very high. Society is a major stakeholder in a sense, it is in the society where the business operates, being such any organization cannot risk to offset the societal balance that has been dominating the culture and the people in that location.
Business and society has already worked hand in hand. From business, we mean any organization that is involved in the production of goods or services to earn profit and deliver value to the customers. Society on the other hand is the segments of people living in a particular place- community, group or a country. Business has always been a part of society and has been using various aspects like the workers and resources for its operation. However, it is not a one-way process. Not only should the business extort various resources from the society but also plan to serve and preserve the culture and resources in the society, aim to develop it and give something back. By using this two dimensional approach, both the society and the business can go hand in hand. How the organization performs its activities and their agendas and their strategy significantly impacts the society, the decision that the manager makes is therefore, not only for the company itself but helps to shape the society for better or worse.
General system theory – A system’s perspective
One of the theory that explains this relation between the business and the society is the general system theory which states that all organism is open to interact with the external environment. It is this interaction that explains the relationship between the variables and the organism. In order for any organism to survive, it needs to be the part of the system. Here, the organism refers to the company whereas the external environment is everything beyond the organization including the society. In order to survive, the business must interact with the environment, but that too is not enough, more important that interacting is the ability to adapt to the environments. If the people don’t find the product feasible, they should change it; if people believe that the new production line that the company set up is emitting too much sound, they should relocate; a business is nothing without its society and as such, the most logical thing to do would be to adapt to the society.
It is true that society absolutely needs what the business produces as they are what they eat, what they wear, what they do, business gives not only product and services, it gives job and taxes without which no society would flourish, but the business is in no way doing favor to the society. The business operates in the society and use their resources. This interdependence between the society and the business gives rise to interactive social system where both need and influence each other.
Business must move away from the traditional ‘ownership theory’ where the entire focus is on maximizing market value and making money, money and money. Only focusing on creation of wealth for the firm is nothing but a downfall in the current economy. This is because of the interlink that the society has with the business. The more appropriate approach would be the ‘stakeholder theory’ where the business earns money, but not in the expense of harm to the society. The value generation is not only for the wealth of the corporation but also towards the society. The obligation is not limited to company but the stakeholders- the customers, the employees, the government as well as the environment.
Types of stakeholders
Stakeholders can be broadly categorized into two types based on their interaction with the company. Some stakeholders are directly involved in economic transactions, these are the market shareholders. Other stakeholders, on the other hand, are directly engaged in economic transaction but are still affected or affects the company, these are the non-market share holders.
Market stakeholder includes those aspect of the society who directly benefits from the goods and services that the business produces. These includes the customers and the suppliers. Similarly, the shareholders also falls under this category as they receive the gains interms of bonus, dividend or additional share based on how the company performs. The employees are also other example of market stakeholders as they get paid by the organization for their inputs.
Non market stakeholders include those people who are not directly involved, whatsoever, with what the company produces or sell. They, however, does have significant impact on the business and vice versa, this includes the community, government, NGOs, the public as well the competitors. Although no direct relationship can be traced, there is always a link between them. If the competitors uses low cost strategy, the business cannot increases the price, if government imposes some taxes the company has to increase their profit margin if they have to earn the same amount of profit. If public thinks that the factory is producing too much harmful gases, the business has to rethink about continuing their production. Government is a controversial topic in this because some believe that government should be market shareholders as the money flows in the form of taxes that is directly a result of the company’s operation. Other believes that government does not conduct any direct economic transactions and hence a non-market stakeholders.Non-market stakeholder don’t breed only challenges, they bring opportunities which if tapped into, holds unimaginable potential for the company to grow. So, although by definition it may sound that lack of direct interaction makes non market stakeholders less important, that is far from truth. They are the reason why some organization survive and why many go home.
Macro Economic forces
Apart from the internal environment, the company operates in the external environment, that we call the macro economic forces, that although is not controllable by the business, has do or die impact on the organizations. They either provide challenges or opportunities to the organization. These can be categorized into 4 major factors:
- Social: social factor includes variables such as the demographics of the population, their lifestyle and their culture. Based on these factors, the business has to adapt to changes. The company cannot go beyond the acceptable norms. The age of the customers, their attitude on health or their culture affects what the business decision will look like
- Economic: The business has to clearly study the inflation rate, the purchasing capability of the customers before actually introducing their product. Income and living standards may be significantly different from one place to another and feasibility study is a must for the business. The interest rate, exchange rate, income are the major determinants of the business success and failure
- Political Legal: Business operates in the environment that is government by various rules and policies imposed by the government. Various acts like environment protection act, labor act, taxation policy must be followed by the company, regardless of whether they like it or not. Various political parties affects the company’s operation. Some opt out of the pressure, others rely on lobbying. Government binds certain activities which might have been the reason for the competitive advantage, everyone of these things needs to be considered to operate in the society.
- Techonological: From the traditional to technological, business must adapt to change, quick. Those who are quick at adapting technology can channel the advantage into their business process. Those who are slow falls behind. Society wants products that are better and cheaper and one way to provide them is through efficient production through the technology- namely automation, online payment, e-business, etc.
These forces provides enormous opportunities to the companies as well as biggest threats. Compliance may lead to a competitive advantage from the competitors, else, they are forced to discharge.
Forces determining business and societal relationship
Some of the forces which determines how the business and societal relationship interacts are as follows:
- Changing social expectation:
Now that the customers are becoming more and more able to purchase what the firm produces, it is not only the question of ‘what the company makes and sells?’, it’s about ‘how the company makes it’. Every other company can provide similar goods but consumers looks for those who not only work for the customers but also the society as a whole. Those company who are socially responsible and act in the favor or social issues and are the good citizen in the society are accepted. If and only if the companies, follow the ethical practices of the society will they be able to survive in it. Companies who relies on child labor or depletion of the environment is not something that will act in their favor. Vigilance and cautiousness are the key.
The most talked about issues of the presented generation is one the issues that cannot be underestimated. As we now are living in the more integrated society, goods and services are traded to the part of the world whose rules and customers are far more different than ours. Similarly, the goods that we have in our table may have come from other half of the globe. National boundaries have become a hypothetical border like it actually is. Not only the goods but the situation of the country are traded as well. With operation in others land comes problem such as depletion of natural resources, equality and other social issues which must be treaded carefully. In this flat world, one must be able to satisfy customers from around the globe while looking at the individual demands.
- Evolving government regulations and business response:
Government works in a mysterious way. From time to time, the policy that the government changes and these has significantly impacted how the business operates in the society. It restricts activities that may be fruitful to the company but actually is bad for the society as a whole. Similarly, it may impose such rule that the company is new to. This dynamic forces that we called government regulates how the business functions. As a result, lobbying has become common where the companies try to influence the government and its bodies to work in their favor. But, how the government changes its policy impacts how the business works and continues to work.
- Dynamic natural environment:
Business uses the resources from the environment but it may happen and it has, that the use of natural resources has turned into extortion of the resource. The planet that we live as it, has grown old and instead of imposing more and more wound, the business should be also focus on conserving them. Everything from global warming to pollution has been the impact of growing business activities, from the factories emitting highly toxic gases to the carbon emitting vehicles. Now, it’s time that the business thinks of society- not as to how to provide goods but also as to how to provide value and benefit to the society. The changing attitude about the environment impacts the relation between the society and the business. Resources that are non-renewable like the coals or fuels should be used carefully whereas other more renewable ones should not be exploited but uses sustainability so that future generations will be able to utilize them as well. New improved technology that extracts these resources are indeed important as it is more effective, but not as the expense of our planet.
- Explosion of new technology and innovation:
Technology is the new milestone of business process. As we move from more tradition to technological era, the business has been able to do their job more efficiently, quickly and accurately at the expense of some investment. The new technology impacts the business and the society as it dictates how the society will continue to look towards the processes. The needs of the society that has remained void is now possible to fill through technology. From Nano technology to the new high speed communication, technology has come a long way. Change is one thing technology has a perfect synchronization with and those companies who are able to embrace this change remains whereas others might have difficulty to survive. Government also seek to use this technology to manage privacy, security as well as the issues related to Intellectual property that protects the ideas of the companies and their innovation.
- Growing emphasis on ethical values:
Ethics is no longer a myth. Everyone seeks ethical standards that is in alignment to the social structure. Only if the company follows such ethical conduct, are they accepted in the society. Child labor, consumer safety, tax evasion, minimum wage rate, labor exploitation is something that is unethical by nature and companies those who practice these are not recognized as a good sign. There are certain standards that the society has set for all and the business must work on align with these goals so to be accepted and flourish.
Society and business are inseparable and although the later may be subset of former, the impact is reciprocal and equal. So, in order for a business to flourish in a society, it is never an easy job, each stakeholder have to be properly taken care off. Their demand and capabilities as well as their expectation must be met on the side of the company. Only then, the business and society standoff grows more imminent.